The Bengaluru bench of the National Company Law Tribunal (NCLT) has held that a State-owned company is not immune from the Insolvency and Bankruptcy Code (IBC) merely because it serves a public purpose. The order, in Daaksh Jute LLP v. Karnataka Food and Civil Supplies Corporation Limited, is dated 12 October 2026 and was reported by LiveLawBiz on 16 October. The bench was Judicial Member Sunil Kumar Aggarwal and Technical Member Radhakrishna Sreepada.
The claim
The petition under Section 9 sought about ₹19.25 crore, an operational debt for supplying 12 lakh jute gunny bags of 580 grams each. The tribunal found the debt and default established and above the threshold in Section 4 of the Code.
The corporation's defence
The corporation argued that it is State-owned and carries out public welfare work tied to food security and the public distribution system, and so acts as an extended limb of the State. It relied on the Supreme Court's 2019 ruling in Hindustan Construction Company v. Union of India to claim immunity.
The tribunal's reasoning
The petitioner argued that the corporation is incorporated under the Companies Act and is therefore a corporate person, and that the earlier ruling concerned the National Highways Authority of India, a body created by statute. The tribunal agreed. Its memorandum of association covers foodgrains and other essential commodities, so it does not act only as an arm of the government and exercises no sovereign function. As a State government company under the Companies Act, 2013, it is a corporate person under Section 3(7) of the IBC. The tribunal said that statutory bodies may be immune, but that government-owned entities such as NHPC, NTPC and IRCON are not automatically protected.
What happens next
The tribunal admitted the petition and started the insolvency process, but held the admission order in abeyance until 31 October 2026 so that the parties can try to settle before the moratorium and the interim resolution professional's takeover begin. The report does not name the professional.
Key numbers
- Debt claimed: About ₹19.25 crore (Operational debt)
- Gunny bags supplied: 12 lakh (Of 580 grams each)
- Order date: 12 October 2026 (NCLT Bengaluru)
- Abeyance until: 31 October 2026 (Time to settle)
What boards and CFOs should note
Three points stand out. First, suppliers to State-owned companies can use the IBC. Second, government ownership alone does not give immunity. Third, the pause until 31 October gives a window to settle.
Source: LiveLawBiz, 16 October 2026. This is a summary of a news report, published as general information. It is not legal, tax or investment advice.
This article is journalism and commentary. It is not a recommendation to buy or sell any security, and it is not professional advice. Read the full disclaimer.
